3 Times it’s Smart to Be in Debt

It’s never advisable to rush out and take on debt, but there are times when doing so actually makes sense.

Debt, it turns out, can be a kind of friend, even if it’s just that flaky friend who can’t really be trusted. You see, all debt is not alike. Some of the worst kinds, such as unsecured credit card debt, can wreck your budget, but even there, you have cases where it won’t, and it could even work to your advantage.

Here’s a guide to handling debt, rather than bemoaning your inability to pay it all off.

LEVERAGING LOW-INTEREST CREDIT CARDS

Many credit cards with low interest rates have hit the market, and the idea behind them is great if you’re part of the credit card industry: Lure customers in with a really low introductory rate and then make money off them when that rate expires and a new high interest rate soars into the double digits. While there are many dangers to such cards — from having new store purchases accrue at a high interest rate to overlooking the balance transfer fees — there’s a way to play this game and win.

Many such offers have 12 months or more of interest-free financing — even 18 months is not uncommon. Keep in mind that if you tap the full amount available, you’ll typically have a 3 percent fee to pay ($300 on $10,000). The idea here is to find a safe investment with a rate of return that will far outpace the transfer fee while taking advantage of the special offer’s time frame. So if you’re lucky enough to find a $10,000 investment with a 10 percent rate of return and can liquidate the investment after a year, you’ll have $1,000 in your pocket against the $300 you paid in transfer fees, and you can still pay off your credit card balance.

The only caveat — and it’s a big one — is to make those minimum payments every month so you don’t lose the low-interest perk. Then, when the promotional rate is finished, cut up the card and go in search of another similar offer.

NEGOTIATING MEDICAL PROVIDER DEBTS

The decision to pay medical debts depends on several factors, including the medical provider, the amount of the debt and whether or not interest charges are applied. In many cases, especially with private practitioners, bills do not accumulate any interest, so it makes no sense to pay them off in full when you might have other high-interest debts sucking at your wallet.

That said, you don’t want collection agencies flagging you down. In March, the three major credit bureaus — Equifax, TransUnion and Experian — also agreed not to report bad medical debts until after a 180-day waiting period. “This provides time for insurance to pay their portion and patients to pay their bills or work out a payment plan to pay them,” said Todd Antonelli, managing director of Berkeley Research Group in Chicago. “When payment plans are devised and agreed to, this debt will not show up on your credit reports, preventing one’s ability to take out a loan, get a credit card, buy a car or a home.”

Negotiate directly with the medical provider whenever possible to get a minimum payment schedule set up and always see whether you can negotiate payment charges on a sliding scale — so that $90 per appointment, for example, is reduced to $70 per appointment. This is common practice in disciplines such as psychology.

FIGHTING THE METER

In America’s cash-strapped cities, a proliferation of red-light cameras and parking meter tickets has created a near epidemic of frustrated, frightened motorists. The sight of a ticket stuck to your window is enough to churn your stomach, but the next time you get one, use your head instead. Dispute every ticket you possibly can because there’s no telling how many will get thrown out by a judge or lost in the bureaucratic maze.

The Expired Meter website, for example, has become a big hit in Chicago, where motorists are taught how to fight back; many of the strategies used there can be used in other cities as well. Every time you fight a ticket, you automatically delay the debt due without accruing a single cent of interest and penalty — and you might just get off the hook.